UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
FOR THE QUARTERLY PERIOD ENDED
OR
FOR THE TRANSITION PERIOD FROM TO
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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As of May 6, 2022, the registrant had
AIRGAIN, INC.
Form 10-Q
For the Quarter Ended March 31, 2022
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PART I. FINANCIAL INFORMATION |
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Item 1. Condensed Consolidated Financial Statements (Unaudited) |
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Condensed Consolidated Statements of Comprehensive Income (Loss) |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. Quantitative and Qualitative Disclosures about Market Risk |
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PART II. OTHER INFORMATION |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Airgain, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except par value)
(Unaudited)
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March 31, 2022 |
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December 31, 2021 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
$ |
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$ |
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Trade accounts receivable, net |
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Inventory |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Leased right-of-use assets |
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Goodwill |
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Intangible assets, net |
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Other assets |
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Total assets |
$ |
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$ |
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Liabilities and stockholders’ equity |
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Current liabilities: |
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Accounts payable |
$ |
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$ |
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Accrued compensation |
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Accrued liabilities and other |
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Short-term lease liabilities |
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Deferred purchase price liabilities |
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Total current liabilities |
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Deferred tax liability |
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Long-term lease liabilities |
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Total liabilities |
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Stockholders’ equity: |
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Common stock and additional paid-in capital, par value $ |
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Treasury stock, at cost; |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
$ |
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$ |
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See accompanying notes.
3
Airgain, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
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Three months ended March 31, |
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2022 |
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2021 |
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Sales |
$ |
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$ |
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Cost of goods sold |
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Gross profit |
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Operating expenses: |
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Research and development |
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Sales and marketing |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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Other (income) expense: |
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Interest income, net |
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Other expense |
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Total other (income) expense |
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Loss before income taxes |
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Provision (benefit) for income taxes |
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( |
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Net income (loss) |
$ |
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$ |
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Net income (loss) per share: |
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Basic |
$ |
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$ |
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Diluted |
$ |
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$ |
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Weighted average shares used in calculating income (loss) per share: |
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Basic |
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Diluted |
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See accompanying notes.
4
Airgain, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)
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Three months ended March 31, |
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2022 |
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2021 |
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Net income (loss) |
$ |
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$ |
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Unrealized gain (loss) on available-for-sale securities, net of deferred taxes |
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Comprehensive income (loss) |
$ |
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$ |
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See accompanying notes.
5
Airgain, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
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Three months ended March 31, |
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2022 |
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2021 |
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Total stockholders' equity, beginning balance |
$ |
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$ |
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Common stock and additional paid-in capital: |
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Balance at beginning of period |
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Stock-based compensation |
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Replacement awards issued in relation to acquisition |
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Issuance of shares for stock purchase plan |
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Balance at end of period |
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Treasury stock: |
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Balance at beginning of period |
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Repurchases of common stock |
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Balance at end of period |
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Accumulated deficit: |
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Balance at beginning of period |
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Net income (loss) |
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Balance at end of period |
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Total stockholders' equity, ending balance |
$ |
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$ |
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See accompanying notes.
6
Airgain, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
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Three months ended March 31, |
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2022 |
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2021 |
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Cash flows from operating activities: |
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Net income (loss) |
$ |
( |
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$ |
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Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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Depreciation |
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Impairment of fixed assets |
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Amortization of intangible assets |
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Stock-based compensation |
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Deferred tax liability |
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( |
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Changes in operating assets and liabilities: |
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Trade accounts receivable |
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( |
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Inventory |
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Prepaid expenses and other current assets |
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( |
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( |
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Other assets |
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Accounts payable |
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Accrued compensation |
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( |
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Accrued liabilities and other |
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Lease liabilities |
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Net cash provided by (used in) operating activities |
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Cash flows from investing activities: |
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Cash paid for acquisition, net of cash acquired |
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( |
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Purchases of property and equipment |
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( |
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( |
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Net cash used in investing activities |
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( |
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Cash flows from financing activities: |
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Proceeds from issuance of common stock, net |
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Net cash provided by financing activities |
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Net increase (decrease) in cash, cash equivalents and restricted cash |
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( |
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Cash, cash equivalents, and restricted cash; beginning of period |
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Cash, cash equivalents, and restricted cash; end of period |
$ |
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$ |
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Supplemental disclosure of cash flow information: |
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Taxes paid |
$ |
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$ |
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Supplemental disclosure of non-cash investing and financing activities: |
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Right-of-use assets recorded upon adoption of ASC 842 |
$ |
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$ |
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Leased liabilities recorded upon adoption of ASC 842 |
$ |
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$ |
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Operating lease liabilities resulting from right-of-use assets |
$ |
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$ |
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Accrual of property and equipment |
$ |
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$ |
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Cash and cash equivalents |
$ |
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$ |
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Restricted cash included in current and other assets |
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Total cash, cash equivalents, and restricted cash |
$ |
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$ |
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See accompanying notes.
7
Airgain, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Description of Business and Basis of Presentation
Description of Business
Airgain, Inc. (the Company) was incorporated in the State of California on March 20, 1995; and reincorporated in the State of Delaware on August 17, 2016. The Company is a leading provider of advanced wireless connectivity solutions and technologies used to enable high performance networking across a broad range of devices and markets, including consumer, enterprise, and automotive. The Company’s headquarters is in San Diego, California.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Interim financial results are not necessarily indicative of results anticipated for the full year. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, from which the balance sheet information herein was derived. The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiary. All intercompany transactions and investments have been eliminated in consolidation.
Segment Information
The Company’s operations are located primarily in the United States and most of its assets are located in San Diego, California, and Plymouth, Minnesota.
The Company operates in
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain amounts in the prior year financial statements have been reclassified to conform to the presentation of the current year financial statements including the reclassification of sales and marketing expenses in the Company's consolidated statement of operations as well as reclassification of sales channel and geographic location in the disaggregated revenue disclosures in Note 18.
Note 2. Summary of Significant Accounting Policies
During the three months ended March 31, 2022, there have been no material changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Restricted Cash
As of March 31, 2022 and December 31, 2021, the Company had $
8
Trade Accounts Receivable
Trade accounts receivable is adjusted for all known uncollectible accounts. The policy for determining when receivables are past due or delinquent is based on the contractual terms agreed upon. Accounts are written off once all collection efforts have been exhausted. An allowance for doubtful accounts is established when, in the opinion of management, collection of the account is doubtful.
Inventory
The majority of the Company’s products are manufactured by third parties that retain ownership of the inventory until title is transferred to the customer at the shipping point. In some situations, the Company retains ownership of inventory which is held in third party contract manufacturing facilities. In certain instances, shipping terms are delivery-at-place and the Company is responsible for arranging transportation and delivery of goods ready for unloading at the named place. In those instances, the Company bears all risk involved in bringing the goods to the named place and records the related inventory in transit to the customer as inventory on the accompanying consolidated balance sheets. In February 2022, the Company announced that it was closing its facility located in Scottsdale, Arizona where certain of its products were previously manufactured.
Inventory is stated at the lower of cost or net realizable value. For items manufactured by the Company, cost is determined using the weighted average cost method. For items manufactured by third parties, cost is determined using the first-in, first-out method (FIFO). Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period. Provisions for excess and obsolete inventories are estimated based on product life cycles, quality issues, and historical experience and were $
Business Combinations
The Company applies the provisions of ASC 805, Business Combinations, in accounting for its acquisitions. It requires the Company to recognize separately from goodwill the assets acquired and the liabilities assumed, at the acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the acquisition date fair values of the net assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, as well as the contingent consideration, where applicable, its estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.
In addition, uncertain tax positions and tax-related valuation allowances assumed, if any, in connection with a business combination are initially estimated as of the acquisition date. The Company re-evaluates these items quarterly based upon facts and circumstances that existed as of the acquisition date with any adjustments to the preliminary estimates being recorded to goodwill if identified within the measurement period. Subsequent to the end of the measurement period or final determination of the estimated value of the tax allowance or contingency, whichever comes first, changes to these uncertain tax positions and tax related valuation allowances will affect the income tax provision (benefit) in the consolidated statements of operations and could have a material impact on the results of operations and financial position.
Revenue Recognition
On January 1, 2019, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606) using the modified retrospective method. The Company generates revenue mainly from the sale of wireless connectivity solutions and technologies. A portion of revenue is generated from service agreements and data subscription plans with certain customers. The revenue generated from service agreements and data subscription plans is insignificant. The Company recognizes revenue to depict the transfer of control of the promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled for those goods or services. Control transfers to customers either when the products are shipped to or received by the customer, based on the terms of the specific agreement with the customer. Revenue from NimbeLink's data subscription plans is recognized over the period of the subscription.
The Company records revenue based on a five-step model in accordance with ASC 606 whereby the company (i) identifies the contract(s) with the customer, (ii) identifies the performance obligations in the contract, (iii) determines the transaction price, (iv) allocates the transaction price to the performance obligation(s) in the contract and (v) recognizes the revenue when (as) the entity satisfies performance obligations. The Company only applies the five-step model when it is probable that the entity will collect substantially all of the consideration it is entitled to in exchange for the goods or services it transfers to the customer.
9
For product sales, each purchase order, along with existing customer agreements, when applicable, represents a contract from a customer and each product sold represents a distinct performance obligation. The contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of the Company’s revenue is recognized on a “point-in-time” basis when control passes to the customer. The revenue from service contracts is recognized either at a "point-in-time" or “over time” based on the terms and conditions in the contract. Revenue from data subscription plans are recognized “over time”.
The Company offers return rights and/or pricing credits under certain circumstances. A reserve for potential rights of return of $
The Company’s contracts with customers do not typically include extended payment terms. Payment terms vary by contract and type of customer and generally range from
The Company provides assurance-type warranties on all product sales ranging from one to two years. The estimated warranty costs are accrued for at the time of sale based on historical warranty experience plus any known or expected changes in warranty exposure. The Company has recorded a warranty reserve of $
The Company has opted to not disclose the portion of revenues allocated to partially unsatisfied performance obligations, which represent products to be shipped within 12 months under open customer purchase orders, at the end of the current reporting period as allowed under ASC 606. The Company has also elected to record sales commissions when incurred, pursuant to the practical expedient under ASC 340, Other Assets and Deferred Costs, as the period over which the sales commission asset that would have been recognized is less than one year.
There were
Shipping and Transportation Costs
Shipping and other transportation costs—expensed as incurred—were $
Fair Value Measurements
The carrying values of the Company’s financial instruments, including cash, trade accounts receivable, accounts payable, accrued liabilities and deferred purchase price obligations approximate their fair values due to the short maturity of these instruments.
Fair value measurements are market-based measurements, not entity-specific measurements. Therefore, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. The Company follows a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below:
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. In December 2019, the FASB issued ASU 2019-10, Effective Dates which updated the effective dates of adoption of ASU 2016-13. ASU 2016-13 is effective, for Smaller Reporting Companies, for annual and interim periods in fiscal years beginning after December 15, 2022. Companies are required to adopt the standard using a modified retrospective adoption method. The Company continues to evaluate the impact of the standard on its consolidated financial statements.
In May 2019, the FASB issued ASU 2019-05, Financial Instruments-Credit Losses (Topic 326), Targeted Transition Relief, which provides entities that have certain instruments within the scope of ASC 326-20, Financial Instruments-Credit Losses-Measured at
10
Amortized Cost, with an option to irrevocably elect the fair value option for eligible instruments. The effective date and transition methodology for this standard are the same as in ASU 2016-13. The Company continues to evaluate the impact of the standard on its consolidated financial statements.
In April 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This guidance clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options due to a lack of explicit guidance in the FASB Codification.The ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2021-04 on its consolidated financial statements.
Note 3. Net Income (Loss) Per Share
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average shares of common stock outstanding for the period. Diluted net income per share is calculated by dividing net income by the weighted average shares of common stock outstanding for the period plus amounts representing the dilutive effect of securities that are convertible into common stock. The Company calculates diluted net income per common share using the treasury stock method.
The following table presents the computation of net income (loss) per share (in thousands except per share data):
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Three months ended March 31, |
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2022 |
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2021 |
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Numerator: |
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Net income (loss) |
$ |
( |
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$ |
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Denominator: |
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Basic weighted average common shares outstanding |
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Plus dilutive effect of potential common shares |
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Diluted weighted average common shares outstanding |
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Net income (loss) per share: |
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Basic |
$ |
( |
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$ |
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Diluted |
$ |
( |
) |
$ |
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Potentially dilutive securities (in common stock equivalent shares) not included in the calculation of diluted net loss per share because to do so would be anti-dilutive are as follows (in thousands):
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Three months ended March 31, |
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2022 |
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2021 |
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Stock options and restricted stock |
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Note 4. Business Combinations
On January 7, 2021, the Company entered into a Stock Purchase Agreement, by and among the Company, NimbeLink Corp., the sellers set forth therein (the Sellers) and Scott Schwalbe in his capacity as seller representative (the Purchase Agreement). NimbeLink is an industrial Internet of Things (IoT) company focused on the design, development and delivery of edge-based cellular connectivity solutions for enterprise customers. The acquisition of NimbeLink supports the Company's transition toward becoming a more system-level company and will play an important role in the Company's overall growth strategy to broaden market diversification, especially within the industrial IoT space.
Pursuant to the Purchase Agreement, at the closing on January 7, 2021, the Company acquired all of the outstanding stock of NimbeLink for an upfront cash purchase price of approximately $
11
Acquisition Consideration
The following table summarizes the fair value of purchase consideration to acquire NimbeLink (in thousands):
Cash |
$ |
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Deferred payments(1) |
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Contingent consideration(2) |
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Replacement options(3) |
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Total purchase consideration |
$ |
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(1)
(2)
(3)
Purchase Price Allocation
The following is an allocation of purchase price as of the closing date based upon an estimate of the fair value of the assets acquired and liabilities assumed by the Company in the acquisition (in thousands):
Cash |
$ |
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Accounts receivable |
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Inventory |
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Prepaids and other current assets |
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Property and equipment |
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Right of use assets |
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Other assets |
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Identified intangible assets |
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Accounts payable |
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( |
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Accrued compensation |
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( |
) |
Accrued expenses and other current liabilities |
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( |
) |
Short-term lease liabilities |
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( |
) |
Long-term lease liabilities |
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( |
) |
Deferred tax liabilities |
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( |
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Identifiable net assets acquired |
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Goodwill |
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Total purchase price |
$ |
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The following is a summary of identifiable intangible assets acquired and the related expected lives for the finite-lived intangible assets (in thousands):
Category |
Estimated life |
Fair value |
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Finite-lived intangible assets: |
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Market-related intangibles |
$ |
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Customer relationships |
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Developed technology |
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Covenants to non-compete |
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Indefinite-lived intangible assets: |
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In-process research and development |
N/A |
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Total identifiable intangible assets acquired |
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$ |
|
|
Assumptions in the Allocations of Purchase Price
Management prepared the purchase price allocations and in doing so considered or relied in part upon reports of a third party valuation expert to calculate the fair value of certain acquired assets, which primarily included identifiable intangible assets and inventory, and the portions of the purchase consideration expected to be paid to NimbeLink securityholders in the future, as described above. Certain NimbeLink securityholders that are employees are not required to remain employed in order to receive the deferred payments and
12
contingent consideration; accordingly, the fair value of the deferred payments and contingent consideration have been accounted for as a portion of the purchase consideration.
Estimates of fair value require management to make significant estimates and assumptions. Contingent consideration payable as of March 31, 2022 and December 31, 2021, was $
The goodwill recognized is attributable primarily to the acquired workforce, expected synergies, and other benefits that the Company believes will result from integrating the operations of the NimbeLink business with the operations of the Company. Certain liabilities included in the purchase price allocations are based on management’s best estimates of the amounts to be paid or settled and based on information available at the time the purchase price allocations were prepared.
The fair value of the customer relationships was determined using the multi-period excess earnings method (MPEEM). MPEEM estimates the value of an intangible asset by quantifying the amount of residual (or excess) cash flows generated by the asset and discounting those cash flows to the present. Future cash flows for contractual and non-contractual customers were estimated based on forecasted revenue and costs, taking into account the growth rates and contributory charges. The fair value of market-related intangible assets, developed technology, and in-process research and development (IPR&D) was determined using the Relief-from-Royalty method. The Relief-from-Royalty method is a specific application of the discounted-cash-flow method, which is a form of the income approach. It is based on the principle that ownership of the intangible asset relieves the owner of the need to pay a royalty to another party in exchange for rights to use the asset. Key assumptions to estimate the hypothetical royalty rate include observable royalty rates, which are royalty rates in negotiated licenses and market-based royalty rates which are royalty rates found in available market data for licenses involving similar assets. Developed technology will begin amortizing immediately and IPR&D will begin amortizing upon the completion of each project. During the three months ended March 31, 2021, all IPR&D projects were completed and transferred to developed technology, with a
The Company assumed liabilities in the acquisition which primarily consist of accrued employee compensation and certain operating liabilities. The liabilities assumed in these acquisitions are included in the respective purchase price allocations above.
Goodwill recorded in connection with the NimbeLink acquisition was $
Note 5. Cash and Cash Equivalents
The following tables show the Company’s cash and cash equivalents by significant investment category as of March 31, 2022 and December 31, 2021 (in thousands):
|
March 31, 2022 |
|
|||||||
|
Amortized |
|
Estimated fair value |
|
Cash and cash equivalents |
|
|||
Cash |
$ |
|
$ |
|
$ |
|
|||
Level 1: |
|
|
|
|
|
|
|||
Money market funds |
|
|
|
|
|
|
|||
Total |
$ |
|
$ |
|
$ |
|
|||
|
|
|
|
|
|
|
|||
|
December 31, 2021 |
|
|||||||
|
Amortized |
|
Estimated fair value |
|
Cash and cash equivalents |
|
|||
Cash |
$ |
|
$ |
|
$ |
|
|||
Level 1: |
|
|
|
|
|
|
|||
Money market funds |
|
|
|
|
|
|
|||
Total |
$ |
|
$ |
|
$ |
|
|||
13
Note 6. Inventory
Inventories are comprised of the following as of March 31, 2022 and December 31, 2021(in thousands):
|
March 31, 2022 |
|
December 31, 2021 |
|
||
Raw materials |
$ |
|
$ |
|
||
Finished goods |
|
|
|
|
||
Reserves |
|
( |
) |
|
( |
) |
Total Inventory |
$ |
|
$ |
|
||
As of March 31, 2022 and December 31, 2021, $
Note 7. Property and Equipment
Depreciation and amortization of property and equipment is calculated on the straight-line method based on the shorter of the estimated useful life or the term of the lease for tenant improvements and to
|
March 31, 2022 |
|
December 31, 2021 |
|
||
Computers and software |
$ |
|
$ |
|
||
Furniture, fixtures, and equipment |
|
|
|
|
||
Manufacturing and testing equipment |
|
|
|
|
||
Construction in process |
|
|
|
|
||
Leasehold improvements |
|
|
|
|
||
Property and equipment, gross |
|
|
|
|
||
Less accumulated depreciation |
|
( |
) |
|
( |
) |
Property and equipment, net |
$ |
|
$ |
|
||
Depreciation expense was $
Note 8. Intangible Assets
The following is a summary of the Company’s acquired intangible assets (dollars in thousands):
|
March 31, 2022 |
|
|||||||||
|
Weighted |
|
Gross |
|
Accumulated |
|
Net |
|
|||
Market related intangibles |
|
$ |
|
$ |
|
$ |
|
||||
Customer relationships |
|
|
|
|
|
|
|
||||
Developed technologies |
|
|
|
|
|
|
|
||||
Covenants to non-compete |
|
|
|
|
|
|
|
||||
Total intangible assets, net |
|
|
$ |
|
$ |
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
December 31, 2021 |
|
|||||||||
|
Weighted |
|
Gross |
|
Accumulated |
|
Net |
|
|||
Market related intangibles |
|
$ |
|
$ |
|
$ |
|
||||
Customer relationships |
|
|
|
|
|
|
|
||||
Developed technologies |
|
|
|
|
|
|
|
||||
Covenants to non-compete |
|
|
|
|
|
|
|
||||
Total intangible assets, net |
|
|
$ |
|
$ |
|
$ |
|
|||
14
E
|
Estimated future amortization |
|
|
2022 (remaining nine months) |
$ |
|
|
2023 |
|
|
|
2024 |
|
|
|
2025 |
|
|
|
2026 |
|
|
|
Thereafter |
|
|
|
Total |
$ |
|
|
Actual amortization expense to be reported in future periods could differ from these estimates as a result of acquisitions, divestitures, and asset impairments, among other factors. Amortization expense was $
Note 9. Accrued Liabilities and Other
Accrued liabilities and other is comprised of the following (in thousands):
|
|
|
|
|
||
|
March 31, 2022 |
|
December 31, 2021 |
|
||
Advanced payments from contract manufacturer |
$ |
|
$ |
|
||
Accrued expenses |
|
|
|
|
||
VAT payable |
|
|
|
|
||
Accrued income taxes |
|
|
|
|
||
Contract liabilities |
|
|
|
|
||
Other current liabilities |
|
|
|
|
||
Accrued liabilities and other |
$ |
|
$ |
|
||
Note 10. Notes Payable and Line of Credit
On January 7, 2021, as a result of the Nimbelink acquisition, the Company assumed a revolving line of credit (Line of Credit) with Choice Financial Group (Choice) whereby Choice had made available to the Company a secured credit facility of up to the lesser of (1) $
On February 18, 2022, the Company and its subsidiary NimbeLink entered into a loan and security agreement with Silicon Valley Bank, providing a revolving line of credit for $
Note 11. Leases
Operating leases
The Company adopted ASC 842 on January 1, 2021, using the effective date transition method, which requires a cumulative-effect adjustment to the opening balance of retained earnings on the effective date. As a result of the adoption of ASC 842, the Company recognized right-of-use assets and lease liabilities of $
15
The Company has made certain assumptions and judgements when applying ASC 842 including the adoption of the package of practical expedients available for transition.
Operating lease arrangements primarily consist of office, warehouse, and test house leases expiring at various years through . The facility leases have original lease terms of to
The Company has entered into various short-term operating leases, primarily for test houses and office equipment with initial terms of
The table below presents aggregate future minimum payments due under leases, reconciled to lease liabilities included in the consolidated balance sheet as of March 31, 2022 (in thousands):
2022 (remaining nine months) |
$ |
|
|
2023 |
|
|
|
2024 |
|
|
|
2025 |
|
|
|
Total minimum payments |
|
|
|
Less imputed interest |
|
( |
) |
Less unrealized translation gain |
|
( |
) |
Total lease liabilities |
|
|
|
Less short-term lease liabilities |
|
( |
) |
Long-term lease liability |
$ |
|
Note 12. Treasury Stock
In 2019 the Company’s Board of Directors (the Board) approved a share repurchase program (the "Program") pursuant to which the Company could purchase up to $
Note 13. Income Taxes
The Company’s effective income tax rate was (
Management assesses its deferred tax assets quarterly to determine whether all or any portion of the asset is more likely than not unrealizable under ASC Topic 740 Income Taxes. The Company is required to establish a valuation allowance for any portion of the asset that management concludes is more likely than not to be unrealizable. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company’s assessment considers all evidence, both positive and negative, including the nature, frequency and severity of any current and cumulative losses, taxable income in carryback years, the scheduled reversal of deferred tax liabilities, tax planning strategies, and projected future taxable income in making this assessment.
16
Note 14. Stockholders’ Equity
In August 2016, the Company's Board adopted the 2016 Equity Inventive Plan (the 2016 Plan) for employees, directors and consultants. In February 2021, the Board adopted the 2021 Employment Inducement Incentive Award Plan (Inducement Plan), which provides for grants of equity-based awards, of which
The following table presents common stock reserved for future issuance(1) (in thousands):
|
March 31, 2022 |
|
December 31, 2021 |
|
||
Stock option awards issued and outstanding |
|
|
|
|
||
Authorized for grants under the 2016 Equity Incentive Plan(2) |
|
|
|
|
||
Authorized for grants under the Inducement Plan(3) |
|
|
|
|
||
Authorized for grants under the 2016 Employee Stock Purchase Plan(4) |
|
|
|
|
||
|
|
|
|
|
||
(1) The table above excludes
(2)
(3)
(4)
Note 15. Stock Based Compensation
Stock-based compensation expense
Stock-based compensation is recorded in the consolidated statements of operations as follows (in thousands):
|
Three months ended March 31, |
|
||||
|
2022 |
|
2021 |
|
||
Cost of goods sold |
$ |
|
$ |
|
||
Research and development |
|
|
|
|
||
Sales and marketing |
|
|
|
|
||
General and administrative |
|
|
|
|
||
Total stock-based compensation expense |
$ |
|
$ |
|
||
Stock Options
The following table summarizes the outstanding stock option activity during the period indicated (shares in thousands):
|
|
|
Weighted average |
|
|||||
|
Number of |
|
Exercise |
|
Remaining |
|
|||
Balance at December 31, 2021 |
|
|
$ |
|
|
|
|||
Granted |
|
|
|
|
|
|
|||
Exercised |
|
( |
) |
|
|
|
|
||
Expired/Forfeited |
|
( |
) |
|
|
|
|
||
Balance at March 31, 2022 |
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|||
Vested and exercisable at March 31, 2022 |
|
|
|
|
|
|
|||
Vested and expected to vest at March 31, 2022 |
|
|
|
|
|
|
|||
The weighted average grant date fair value of options granted during the three months ended March 31, 2022 and year ended December 31, 2021, was $
At March 31, 2022, there was $
17
Restricted Stock
The following table summarizes the Company's restricted stock unit activity during the period indicated (shares in thousands):
|
Restricted |
|
Weighted average grant date |
|
||
Balance at December 31, 2021 |
|
|
$ |
|
||
Grants |
|
|
|
|
||
Vested and released |
|
( |
) |
|
|
|
Forfeited |
|
( |
) |
|
|
|
Balance at March 31, 2022 |
|
|
|
|
||
As of March 31, 2022 there was $
Employee Stock Purchase Plan (ESPP)
The Company maintains the 2016 Employee Stock Purchase Plan (ESPP) that provides employees an opportunity to purchase common stock through payroll deductions. The ESPP is implemented through consecutive
Based on the
During the three months ended March 31, 2022, the Company received $
Note 16. Commitments and Contingencies
Arizona facility shut down
In February 2022, the Company initiated moving its in-house manufacturing operations to external contract manufacturers and shutting down its Arizona manufacturing operations where aftermarket fleet and AirgainConnect products were produced. The Company accrued $
Potential product warranty claims
In January 2022, the Company was notified of a potential product warranty claim. The Company was able to identify the root cause of the claim, as well as the needed enhancement to the product. As of March 31, 2022, the Company reserved approximately $
Indemnification
In some agreements to which the Company is a party, the Company has agreed to indemnify the other party for certain matters, including, but not limited to, product liability and intellectual property. To date, there have been no known events or circumstances that have resulted in any material costs related to these indemnification provisions and no liabilities have been recorded in the accompanying consolidated financial statements.
18
Note 17. Concentration of Credit Risk
(a) Concentration of Sales and Accounts Receivable
The following represents customers that accounted for
|
Three months ended March 31, |
|
||||
|
2022 |
|
2021 |
|
||
Customer A |
|
% |
|
% |
||
Customer B |
|
% |
|
% |
||
Customer C |
|
% |
|
% |
||
Customer D |
|
% |
|
% |
||
The following represents customers that accounted for
|
March 31, 2022 |
|
December 31, 2021 |
|
||
Customer A |
|
% |
|
% |
||
Customer B |
|
% |
|
% |
||
Customer C |
|
% |
|
% |
||
Customer D |
|
% |
|
% |
||
(b) Concentration of Purchases
During the three months ended March 31, 2022, the Company’s products were primarily manufactured by five contract manufacturers with locations in China, Mexico, Minnesota, and Vietnam and at the Company’s Arizona facility (see Note 16).
(c) Concentration of Property and Equipment
The Company’s property and equipment, net by geographic region are as follows (in thousands):
|
March 31, 2022 |
|
December 31, 2021 |
|
||
North America |
$ |
|
$ |
|
||
Asia Pacific (APAC) |
|
|
|
|
||
Europe, Middle East and Africa (EMEA) |
|
|
|
|
||
Property and equipment, net |
$ |
|
$ |
|
||
Note 18. Disaggregated Revenue
Disaggregated revenue are as follows (in thousands):
|
Three months ended March 31, |
|
||||
|
2022 |
|
2021 |
|
||
By Sales Channel: |
|
|
|
|
||
Distributors and resellers |
$ |
|
$ |
|
||
OEM/ODM/Contract manufacturer |
|
|
|
|
||
Other |
|
|
|
|
||
Total sales |
$ |
|
$ |
|
||
|
|
|
|
|
||
By Market Group: |
|
|
|
|
||
Consumer |
$ |
|
$ |
|
||
Enterprise |
|
|
|
|
||
Automotive |
|
|
|
|
||
Total sales |
$ |
|
$ |
|
||
|
|
|
|
|
||
By Geography: |
|
|
|
|
||
China (including Hong Kong and Taiwan) |
$ |
|
$ |
|
||
North America |
|
|
|
|
||
Rest of the world |
|
|
|
|
||
Total sales |
$ |
|
$ |
|
||
19
Enterprise revenue for the three months ended March 31, 2022 and 2021, is primarily comprised of revenue generated from the sale of industrial Internet of Things products that were acquired through the NimbeLink acquisition. Revenue generated from the United States was $
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis and the interim unaudited condensed consolidated financial statements included in this quarterly report on Form 10-Q should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2021 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2021.
Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact contained in this quarterly report, including statements regarding our future operating results, financial position and cash flows, the impact of COVID-19, our business strategy and plans, and our objectives for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “would,” “could,” “should,” “expect,” “plan,” “anticipate,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this quarterly report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, operating results, business strategy, short-term and long-term business operations and objectives. These forward-looking statements speak only as of the date of this quarterly report and are subject to a number of risks, uncertainties and assumptions, including those described in Part II, Item 1A, “Risk Factors.” The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
Overview
We are a leading provider of advanced wireless connectivity solutions and technologies used to enable high performance wireless networking across a broad and increasing range of devices and markets, including consumer, enterprise and automotive. Our mission is to connect the world through optimized integrated wireless solutions. Combining design-led thinking with testing and development, our technologies are deployed in carrier, fleet, enterprise, residential, private, government, and public safety wireless networks and systems, including set-top boxes, access points, routers, modems, gateways, media adapters, portables, digital televisions, sensors, fleet tracking, in-vehicle networking, and asset tracking devices. Through our pedigree in the design, integration, and testing of high-performance wireless modules and antenna technology, we have become a leading provider of integrated communications products that solve critical connectivity needs.
As a wireless connectivity solution provider that has a history in radio frequency technology, we are leveraging our experience in embedded antenna solutions and embedded modems to transition from a components provider to a wireless system solutions provider. In 2020 we announced our new patented AirgainConnect® platform. We believe this flagship platform offers a novel solution in our public safety and fleet focused automotive markets and will play a key role in our future strategy for 5G solutions internationally for automotive and enterprise markets. The first product from the AirgainConnect platform is the FirstNet Ready™ AirgainConnect AC-HPUE antenna-modem, targeting vehicles used by first responders like police, fire and EMS and public safety support vehicles which include bus, rail, courier, utility, waste or water management, and security.
On January 7, 2021, we purchased 100% of the outstanding shares of Minnesota-based NimbeLink Corp. NimbeLink is an industrial Internet of things, or IIoT, company focused on the design, development, and delivery of cellular solutions for enterprise customers. NimbeLink provides carrier-certified embedded modems and asset tracking solutions that minimize or often eliminate RF design and certification time from project schedules, significantly reducing costs and time to market.
20
The acquisition of NimbeLink supports our transition toward becoming a more system-level company and will play an important role in our overall growth strategy to broaden market diversification, especially within the industrial IoT space. NimbeLink’s industrial IoT expertise puts us squarely in one of our targeted enterprise submarkets and extends the breadth and opportunity for our AirgainConnect platform. Our worldwide salesforce represents a present opportunity to expand NimbeLink’s reach and NimbeLink will now gain access to design opportunities they were not previously able to win. The result is an increase in the opportunities for us in the enterprise market and a more diverse offering of products and expertise for our customers. We plan to include products with the NimbeLink brand under our broader Enterprise IIoT product lines.
The consumer market encompasses a large and growing market of consumers using wireless-enabled devices and our antennas are deployed in consumer access points, wireless gateways, Wi-Fi Mesh systems and extenders, smart TVs, smart home devices, and set-top boxes. Our antennas support an array of technologies, including WLAN, Wi-Fi, LTE, 5G and LPWAN.
The enterprise market is characterized by devices that provide reliable wireless access for high-density environments such as buildings, campuses, transportation terminals and stadiums. Within this market our antennas are deployed across a wide range of systems, devices, and applications that include access points and gateways, fixed wireless access infrastructure, small cells, and remote radio heads. We believe our products are well positioned to increase our growth in this market.
In the automotive market, our antennas are deployed in a wide range of vehicles to support a variety of wireless connectivity solutions in the fleet and aftermarket segment and support a variety of technologies that include WiFi, 3G, LTE, Satellite and LPWAN. The fleet and aftermarket segment of the automotive market consists of applications whereby rugged vehicular wireless routers are paired with external antenna systems to provide connectivity to fixed and mobile assets. Within the fleet and aftermarket market segment, there has been a rise in the number of antennas per vehicle. The majority of our revenues are currently derived from fleet and aftermarket sales and going forward, our strategy is to augment our current sales in the automotive aftermarket with design wins and sales into the automotive OEMs.
Our design teams partner with customers from the early stages of antenna prototyping to device throughput testing to facilitate optimal performance and quick time to market. Our capabilities include design, custom engineering support, integration, and OTA testing. These capabilities have resulted in a strong reputation across the OEM, ODM and chipset manufacturer ecosystem. Our competencies and strengths have helped us secure design wins used in multiple reference designs from leading Wi-Fi chipset vendors, OEMs, ODMs, chipset manufacturers and service providers rely on these reference designs and our engineering skills to deliver superior throughput performance. We view our relationship with OEM, ODM, chipset manufacturers and service providers as an important attribute to our long-term strategy and success.
We believe demand is growing rapidly for our advanced wireless connectivity solutions and technologies and there is a significant market opportunity. As the ability to provide mobile internet access grows, our solutions and expertise become more important to prospects and customers. As a passive component, embedded antennas can be viewed as a commodity. However, our design, engineering, and research show that antenna selection, placement, and testing can have significant improvements in device performance. We believe that we are chosen when performance is a more significant factor than price, and our distinctive focus on superior designs that provide increased range and throughput has allowed us to build a leadership position in the in-home WLAN device market
COVID-19 Pandemic
The United States and other countries around the world are experiencing a major health pandemic related to COVID-19, which has created considerable instability and disruption in the U.S. and world economies. Governmental authorities in impacted regions have taken actions in an effort to slow the spread of COVID-19’s spread, resulting in limitations on business operations and consumer and employee travel. We have worked, and continue to work, to comply within the framework of local, county, state, and federal laws. In that regard, we have implemented a wide range of practices to protect and support our employees and to modify and monitor the engagement with our customers, suppliers, and contract manufacturers. Specifically, in response to continuing efforts to contain the spread of COVID-19 as new strains emerge, we have continued to monitor or modify our workspaces and facilities to continue to operate at full function yet with precautions in place to help prevent outbreak or spread of the virus. In the United States, we continue to manage the number of our employees present in the San Diego office and those who are working from home, in a manner to maximize operational capacity yet still limit any spread or outbreaks of the virus. In accordance with local regulations, engineering and testing operations in our Scottsdale offices, as well as testing operations in our remote facilities, have resumed with protocols in place to help prevent and limit the spread of the virus. In each work location, protocols have been established and remain in place, in accordance with government guidance, in order to minimize the risk to those employees whose presence in the office is necessary or allowed. Our salespeople have recommenced some business travel but also continue to engage with customers remotely rather than in person to secure sales of, and opportunities for, our products and services.
21
The continued spread of COVID-19 and its related effects on our business have had a material and adverse effect on our business operations. Through the date of this filing, these disruptions or restrictions include restrictions on our ability to travel, temporary closures of our office buildings or the facilities of our customers or suppliers, and through first quarter 2022 disruptions with certain components in our supply chain located in Asia as well as those of our customers. Such disruptions to our customers have had a negative impact on our sales and operating results through first quarter of 2022. Related to sales, we saw orders reach historic lows for our previously core consumer business in the fourth quarter. We have seen signs that the consumer business is beginning to rebound, however, the continued spread of COVID-19 may adversely affect such rebound and have a negative effect on our operating results in future quarters.
The impact of the COVID-19 pandemic on the U.S. and world economies generally, and our future results in particular, could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted.
Factors Affecting Our Operating Results
We believe that our performance and future success depend upon several factors including continuing effects of COVID-19 on our customer product rollouts, continuation of the global supply shortages, the growth in sales of AirgainConnect AC-HPUE and related products, transitions to contract manufacturers and success in integrating NimbeLink and increasing its sales. Our performance and future success also depend on historical factors such as manufacturing costs, continued investments in our growth, our ability to expand into growing addressable markets, including consumer, enterprise, and automotive, the average selling prices of our products per device, the number of antennas per device, and our ability to diversify the number of devices that incorporate our antenna products. Our customers are price conscious, and our operating results are affected by pricing pressure which may force us to lower prices below our established list prices. In addition, a few end-customer devices which incorporate our antenna products comprise a significant amount of our sales, and the discontinuation or modification of such devices may materially and adversely affect our sales and results of operations. Our ability to maintain or increase our sales depends on, among other things, new and existing end-customers selecting our antenna solutions for their wireless devices and networks, the impact of the COVID-19 pandemic, as discussed above, the deployment level of AirgainConnect AC-HPUE, the proliferation of Wi-Fi connected home devices and data intensive applications, trends related to in-house design in our traditional set top market, investments in our growth to address customer needs, the impact of the global supply shortage on our business and that of our end customers, our ability to target new end markets, development of our product offerings and technology solutions, and international expansion, as well as our ability to successfully integrate past and any future acquisitions. While each of these areas presents significant opportunities for us, they also pose significant risks and challenges we must successfully address. We discuss many of these risks, uncertainties and other factors in greater detail in the section entitled “Risk Factors” included in this quarterly report on Form 10-Q and in Item 1A of our Annual Report on Form 10-K.
Seasonality
Our operating results historically have not been subject to significant seasonal variations. However, our operating results are affected by how customers make purchasing decisions around local holidays in China. Although it is difficult to make broad generalizations, our sales tend to be lower in the first quarter of each year compared to other quarters due to the Chinese New Year. The broader economic impacts caused by the COVID-19 pandemic in China also contributed to the traditionally slower first quarter
sales this year. Results for any quarter may not be indicative of the results that may be achieved for the full fiscal year and these patterns may change as a result of general customer demand or product cycles.
Key Components of Our Results of Operations and Financial Condition
Sales
We primarily generate revenue from the sales of our products. We recognize revenue to depict the transfer of control over promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled for those goods or services. We generally recognize product sales at the time of shipment to our customers, provided that all other revenue recognition criteria have been met. Although currently insignificant, we also generate service revenue from agreements to provide design, engineering, and testing services as well as subscription revenue from the sale of data plans.
22
Cost of Goods Sold
The cost of goods sold reflects the cost of producing antenna, embedded modem and asset tracking products that are shipped for our customers’ devices as well as costs incurred for service agreements. This primarily includes manufacturing costs of our products payable to our third-party contract manufacturers, as well as manufacturing costs incurred at our facility in Arizona, prior to closure in March 2022. The cost of goods sold that we generate from services provided to customers primarily includes personnel costs and the cost to maintain data lines.
Operating Expenses
Our operating expenses are classified into three categories: research and development, sales and marketing, and general and administrative. The largest component for these categories is personnel costs, which includes salaries, employee benefit costs, bonuses, and stock-based compensation. Each of the three categories include allocation of overhead costs for depreciation, facilities, and information technology expenses. Allocation of facilities expenses consists of amortization of leasehold improvements as well as, rent and utility expenses and taxes. Operating expenses are generally recognized as incurred.
Research and Development. Research and development expenses primarily consist of personnel and facility-related costs attributable to our engineering research and development personnel. These expenses include work related to the design, engineering and testing of antenna and modem designs and antenna integration, validation and testing of customer devices. These expenses include salaries, including stock-based compensation, benefits, bonuses, travel, communications, and similar costs, and depreciation and allocated costs for certain facilities. We may also incur expenses from consultants and for prototyping new antenna solutions. We expect research and development expenses to increase in absolute dollars in future periods as we continue to invest in the development of new solutions and markets and as we invest in improving efficiencies within our supply chain, although our research and development expense may fluctuate as a percentage of total sales.
Sales and Marketing. Sales and marketing expenses primarily consist of personnel and facility-related costs for our sales, marketing, and business development personnel, stock-based compensation and bonuses earned by our sales personnel and commissions earned by our third-party sales representative firms. Sales and marketing expenses also includes the costs of trade shows, marketing programs, promotional materials, demonstration equipment, travel, recruiting, and allocated costs for certain facilities. We expect sales and marketing expenses to fluctuate as a percentage of total sales.
General and Administrative. General and administrative expenses primarily consist of personnel and facility-related costs for our executive, finance, and administrative personnel, including stock-based compensation, as well as accounting, and other professional services fees, depreciation, and other corporate expenses. We expect general and administrative expenses to fluctuate over the next several quarters as we grow our operations.
23
Other (Income) Expense
Interest Income, net. Interest income consists of interest from our cash and cash equivalents offset by interest expense which consists of interest charges on credit card charges and certain vendor bills.
Other Expense Other expense consists of the loss from disposal of property and equipment, realized foreign exchange gains or losses, and other expenses.
Provision for Income Taxes
Provision for income taxes consists of federal, state, and foreign income taxes. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. It is difficult for us to project future taxable income as the timing and size of sales of our products are variable and difficult to predict. We concluded that it is not more likely than not that we will utilize our deferred tax assets other than those that are offset by reversing temporary differences.
Results of Operations
The following tables set forth our operating results for the periods presented as a percentage of our total sales for those periods. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods.
|
Three months ended March 31, |
|
||||
|
2022 |
|
2021 |
|
||
Statements of Operations Data: |
|
|
|
|
||
Sales |
|
100.0 |
% |
|
100.0 |
% |
Cost of goods sold |
|
59.2 |
|
|
60.3 |
|
Gross profit |
|
40.8 |
|
|
39.7 |
|
Operating expenses: |
|
|
|
|
||
Research and development |
|
18.5 |
|
|
15.6 |
|
Sales and marketing |
|
16.3 |
|
|
14.0 |
|
General and administrative |
|
19.9 |
|
|
20.9 |
|
Total operating expenses |
|
54.7 |
|
|
50.5 |
|
Loss from operations |
|
(13.9 |
) |
|
(10.8 |
) |
Total other (income) expense |
|
0.1 |
|
|
— |
|
Loss before income taxes |
|
(14.0 |
) |
|
(10.8 |
) |
Provision (benefit) for income taxes |
|
0.5 |
|
|
(12.2 |
) |
Net income (loss) |
|
(14.5 |
)% |
|
1.4 |
% |
Comparison of the Three Months Ended March 31, 2022 and 2021 (dollars in thousands)
Sales
|
For the Three Months Ended March 31, |
|
||||||||||
|
2022 |
|
2021 |
|
$ Change |
|
% Change |
|
||||
Sales |
$ |
17,522 |
|
$ |
17,377 |
|
$ |
145 |
|
|
0.8 |
% |
Sales remained relatively flat for the three months ended March 31, 2022, compared to the three months ended March 31, 2021. Revenue from our consumer market decreased $4.2 million, to $6.1 million for the three months ended March 31, 2022 from $10.3 million for the three months ended March 31, 2021, primarily due to weakness caused by global supply shortages impacting our customers' product sales. Revenue from our enterprise market increased $4.2 million, to $8.6 million for the three months ended March 31, 2022, from $4.4 million for the three months ended March 31, 2021, primarily due to higher revenues generated from the sale of industrial IoT products and enterprise Wi-Fi access point products. Revenue for our automotive market increased slightly to $2.8 million for the three months ended March 31, 2022, from $2.7 million for the three months ended March 31, 2021.
Cost of Goods Sold
24
|
For the Three Months Ended March 31, |
|
||||||||||
|
2022 |
|
2021 |
|
$ Change |
|
% Change |
|
||||
Cost of goods sold |
$ |
10,366 |
|
$ |
10,480 |
|
$ |
(114 |
) |
|
(1.1 |
)% |
Cost of goods sold decreased for the three months ended March 31, 2022, in part, from the previous one-time amortization expense of the inventory step-up related to NimbeLink acquisition in the three months ended March 31, 2021. This decrease was offset by increased expenses related to inventory and warranty reserves in the three months ended March 31, 2022, but offset slightly by lower materials and production costs.
Gross Profit
|
For the Three Months Ended March 31, |
|
||||||||||
|
2022 |
|
2021 |
|
$ Change |
|
% Change |
|
||||
Gross profit |
$ |
7,156 |
|
$ |
6,897 |
|
$ |
259 |
|
|
3.8 |
% |
Gross profit (percentage of sales) |
|
40.8 |
% |
|
39.7 |
% |
|
|
|
1.1 |
% |
|
Gross profit as a percentage of sales increased by 1.1% for the three months ended March 31, 2022, compared to the three months ended March 31, 2021, due in part to lower materials and production costs as well as the decreased expenses from the previous one-time amortization expense of the inventory step-up related to the NimbeLink acquisition in the same year-ago period but offset by increased expenses related to inventory and warranty reserves for the three months ended March 31, 2022.
Operating Expenses
|
For the Three Months Ended March 31, |
|
||||||||||
|
2021 |
|
2020 |
|
$ Change |
|
% Change |
|
||||
Operating Expenses |
|
|
|
|
|
|
|
|
||||
Research and development |
$ |
3,242 |
|
$ |
2,706 |
|
$ |
536 |
|
|
19.8 |
% |
Sales and marketing |
|
2,855 |
|
|
2,439 |
|
|
416 |
|
|
17.1 |
|
General and administrative |
|
3,485 |
|
|
3,633 |
|
|
(148 |
) |
|
(4.1 |
) |
Total operating expenses |
$ |
9,582 |
|
$ |
8,778 |
|
$ |
804 |
|
|
9.2 |
% |
Research and Development
Research and development expense increased $0.5 million or 19.8% for the three months ended March 31, 2022, compared to the three months ended March 31, 2021. The increase was primarily due to higher personnel-related costs.
Sales and Marketing
Sales and marketing expense increased $0.4 million or 17.1%, for the three months ended March 31, 2022, compared to the three months ended March 31, 2021. The increase was primarily due to higher personnel-related costs, marketing-related expenses, and travel.
General and Administrative
General and administrative expense decreased slightly for the three months ended March 31, 2022, compared to the three months ended March 31, 2021. The decrease was primarily due to lower personnel-related costs, and travel.
Other Income
|
For the Three Months Ended March 31, |
|
||||||||||
|
2022 |
|
2021 |
|
$ Change |
|
% Change |
|
||||
Other (income) expense: |
|
|
|
|
|
|
|
|
||||
Interest (income) expense, net |
$ |
— |
|
$ |
(8 |
) |
$ |
8 |
|
|
(100.0 |
)% |
Other expense |
|
10 |
|
|
7 |
|
|
3 |
|
|
42.9 |
|
Total other (income) expense |
$ |
10 |
|
$ |
(1 |
) |
$ |
11 |
|
|
|
|
Other expense for the three months ended March 31, 2022, was primarily due to loss on impairment of fixed assets with no offset from interest (income) expense, net.
Liquidity and Capital Resources
We had cash, cash equivalents and restricted cash of $18.8 million at March 31, 2022.
Before 2013 we had incurred net losses in each year since our inception and have incurred net losses for the years ended 2018, 2020, and 2021. As a result, we had an accumulated deficit of $60.0 million at March 31, 2022.
25
Since inception, we have primarily financed our operations and capital expenditures through private sales of preferred stock, public offerings of our common stock and cash flows from our operations. We have raised an aggregate of $29.5 million in net proceeds from the issuance of our preferred stock and convertible promissory notes and $37.0 million from the sale of common stock in our public offerings.
On February 18, 2022, we and our subsidiary NimbeLink Corp entered into a loan and security agreement with Silicon Valley Bank, pursuant to which we together have a revolving line of credit for $4.0 million. As of March 31, 2022, there was no balance owed on the line of credit. The line of credit will only allow for maximum advances of 80% of the aggregate face amount of certain eligible receivables. The line of credit bears an interest rate of WSJ prime (currently 3.25%) plus 1.75%, and matures in February 2023. The lender has a first security interest in all of our and NimbeLink’s assets, excluding intellectual property, for which the lender has received a negative pledge.
On January 7, 2021, as a result of the Nimbelink acquisition, we assumed a revolving line of credit, or the Line of Credit, with Choice Financial Group, or Choice, whereby Choice had made available to Airgain a secured credit facility of up to the lesser of (1) $1.5 million or (2) the sum of (a) 80% of the aggregate amount of third party accounts receivable balances, excluding progress billings, foreign receivables, accounts subject to dispute or setoff and doubtful accounts (Eligible Accounts) aged less than 90 days, net of 10% allowance, and (b) 25% of raw materials and finished goods, except those held at named contract manufacturer, after a 10% reserve for excess and obsolete inventory. Amounts borrowed under the Line of Credit bore interest at the prime rate plus 1%, payable monthly. The facility was secured by a commercial guarantee and a lien over the property of NimbeLink including inventory, equipment, accounts receivable, investments, deposit accounts, other rights to payment and performance and general intangibles. In April 2021, we closed the Line of Credit with Choice.
In September 2019, our Board of Directors, or the Board, approved a share repurchase program, or the 2019 Program, pursuant to which we could purchase up to $7.0 million of shares of its common stock over the 12 month period following the establishment of the program. The repurchases under the 2019 Program were made from time to time in the open market or in privately negotiated transactions and were funded from our working capital. Repurchases were made in compliance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended, subject to market conditions, available liquidity, cash flow, applicable legal requirements and other factors. In September 2020, the Board approved an extension to the 2019 Program for an additional 12 month period ending September 9, 2021. Upon expiration of the program, our Board has not authorized a new repurchase program, but may do so in the future.
We plan to continue to invest for long-term growth, including expanding our sales force and engineering organizations and making additional capital expenditures to further penetrate markets both in the United States and internationally, as well as expanding our research and development for new product offerings and technology solutions. We anticipate that these investments will continue to increase in absolute dollars. We believe that our existing cash and cash equivalents balance together with cash proceeds from operations will be sufficient to meet our working capital requirements for at least the next 12 months.
The following table presents a summary of our cash flow activity for the periods set forth below (in thousands):
|
For the Three Months Ended March 31, |
|
||||
|
2022 |
|
2021 |
|
||
Net cash provided by (used in) operating activities |
$ |
4,152 |
|
$ |
(3,920 |
) |
Net cash used in investing activities |
|
(128 |
) |
|
(14,246 |
) |
Net cash provided by financing activities |
|
120 |
|
|
1,451 |
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
$ |
4,144 |
|
$ |
(16,715 |
) |
Net cash provided by (used in) operating activities. Net cash provided by operating activities was $4.2 million for the three months ended March 31, 2022. This was primarily driven by $4.5 million net change in operating assets and liabilities and $2.2 million in non-cash expenses including but offset by the net loss of $2.5 million.
Net cash used in investing activities. Net cash used in investing activities of $0.1 million for the three months ended March 31, 2022, was purchases of property and equipment.
Net cash provided by financing activities. Net cash provided by financing activities of $0.1 million for the three months ended March 31, 2022, was proceeds from common stock issuances under the ESPP less taxes paid from the net restricted shares issued upon vesting.
Contractual Obligations and Commitments
There have been no material changes outside the ordinary course of our business during the three months ended March 31, 2022, to the information regarding our contractual obligations that was disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2021.
Off-Balance Sheet Arrangements
26
We do not have any off-balance sheet arrangements (as defined by applicable regulations of the Securities and Exchange Commission) that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of financial condition and operating results is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported sales and expenses during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions.
There were no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Significant Judgments and Estimates,” in our Annual Report on Form 10-K for the year ended December 31, 2021.
Recent Accounting Pronouncements
See Note 2, “Summary of Significant Accounting Policies” within the unaudited condensed consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this quarterly report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
27
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be a party to legal proceedings and subject to claims incident in the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we believe that the final outcome of these matters will not have a material adverse effect on our financial condition or business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
ITEM 1A. RISK FACTORS
A description of the risk factors associated with our business is included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes to such risk factors. In evaluating our business, you should carefully consider the risk factors discussed in our Annual Report on Form 10-K. The occurrence of any of the risks discussed in such filings, or other events that we do not currently anticipate or that we currently deem immaterial, could harm our business, prospects, financial condition and results of operations. In that case the trading price of our common stock could decline, and you may lose all or part of your investment.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
28
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibit Number |
|
Description |
|
|
|
3.1(1) |
|
|
|
|
|
3.2(2) |
|
|
|
|
|
4.1(3) |
|
Specimen stock certificate evidencing the shares of common stock |
|
|
|
4.3(4) |
|
|
|
|
|
10.1(5) |
|
|
|
|
|
31.1* |
|
|
|
|
|
32.1* |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
101.INS |
|
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document
|
104 |
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
* These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
29
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
AIRGAIN, INC. |
|
|
|
Date: May 10, 2022 |
|
/s/ Jacob Suen |
|
|
Jacob Suen President and Chief Executive Officer (principal executive officer and principal financial and accounting officer) |
|
|
|
|
|
|
|
|
|
30